JERUSALEM, Jan 5 (Reuters) - Israel's Jerusalem municipality has approved construction of four apartment buildings next to a Jewish seminary in East Jerusalem, officials said on Tuesday, a project Palestinians called an attempt to undermine peace moves.

Palestinian President Mahmoud Abbas has said he will not resume talks with Israel, suspended for the past year, until it halts all settlement activity in line with a 2003 peace plan in which the Palestinians pledged to rein in militants.

Israel and the United States have called on him to return to negotiations without preconditions.

As far as the municipality is concerned, building can begin, said Stephan Miller, spokesman for Jerusalem Mayor Nir Barkat, after its planning committee gave the go-ahead on Monday for the 24-unit complex to be erected on the Mount of Olives.

Nabil Abu Rdainah, a spokesman for Abbas, said the project, adjacent to the long-standing Beit Orot seminary, proves Israel is trying to undermine Arab and international efforts aimed at saving the peace process.

Some 200,000 Israelis already live in East Jerusalem and nearby areas of the West Bank that Israel captured in a 1967 war and considers part of the biblical city that it describes as its eternal and indivisible capital.

The Israeli sovereignty claim is not recognised internationally.

Palestinians want East Jerusalem to be the capital of a future state in the West Bank and Gaza Strip. They say Israeli settlements could thwart their hopes for a viable homeland.

Israeli Prime Minister Benjamin Netanyahu excluded Jerusalem from the 10-month moratorium he announced in November on housing starts in Jewish settlements in the West Bank, a move he said he hoped could help revive peace negotiations.

A week ago, Israel drew Palestinian and international criticism when it announced plans to build nearly 700 new Jewish homes in areas of the West Bank within its declared Jerusalem city limits.

Responding to that project, White House spokesman Robert Gibbs said neither the Israelis nor the Palestinians should engage in actions that could preempt a peace deal.

In all, about 500,000 Israelis live in the West Bank and East Jerusalem among 2.7 million Palestinians.

The World Court has ruled that Israeli settlements in the West Bank and East Jerusalem are illegal. Many Jewish settlers claim a God-given right to the West Bank, which they call by the biblical names Judea and Samaria. (Reporting by Ori Lewis in Jerusalem and Ali Sawafta in Ramallah; Writing by Jeffrey Heller; Editing by Noah Barkin)